Governments must intervene from time to time in markets, in order to correct inefficiencies. Public goods and situations with asymmetric information often require government intervention.
a. Identify the characteristics of a public good.
-Why do public goods exist?
-What is the problem that comes about due to public goods?
-Which of the following are public goods: parks, police services, welfare payments to the poor, production of energy, space exploration?
-Briefly describe how the free rider problem can be overcome.
-Briefly explain why markets often have a difficult time producing public goods.
b. Briefly explain what it means for information to be asymmetric.
-What is Moral Hazard?
-Identify and briefly explain three methods that insurance companies could use to off-set the moral hazard associated with their industry.
-What is Adverse Selection?